Professional Documents
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7. It is estimated that over 100,000 students will apply to the top 30 M.B.A. programs in the
United States this year.
a. Using the concept of net present value and opportunity cost, explain when it is rational
for an individual to pursue an M.B.A. degree.
b. What would you expect to happen to the number of applicants if the starting salaries of
managers with M.B.A. degrees remained constant but salaries of managers without such
degrees decreased by 20 percent? Why?
Solution:
a. The net present value of students application of top 30 M.B.A programs in USA is the
value of benefits which these students are received from attending school minus the
opportunity cost of attending school instead of doing something else. The rational for an
individual to pursue an M.B.A degree when students net present value is higher than the
opportunity cost or their net present value is higher than zero.
b. If the salaries of managers with M.B.A degrees remained constant in while none- degrees
managers decreased by 20 percent, it will be increased the present value of students
application and decreased the opportunity cost of getting M.B.A. Therefore, the number
of applicants would expect more students to apply.
8. Jaynet spends $30,000 per year on painting supplies and storage space. She recently
received two job offers from a famous marketing firmone offer was for $110,000 per
year, and the other was for $80,000. However, she turned both jobs down to continue a
painting career. If Jaynet sells 25 paintings per year at a price of $8,000 each
a. What are her accounting profits?
earn the positive economic profits, the revenue per year must be greater than $220,000.